Question

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Problem No. 1 Purpose: To incorporate the concepts related to the Income Statement, Balance Sheet, Statement of Cash Flows and Ratio Analysis. Resources Provided: 1. Summary Operating Statement and Statistics 2. Comparable Balance Sheet with Additional Information 3. Statement of Cash Flow Template Required: STATEMENTS TO BE USED TO COMPLETE ITEM COMPARATIVE STATEMENT ITEM OPERATING BALANCE OF CASH STATEMENT SHEET FLOWS Re-Create and finish financial statement in Excel using PDF provided. X X Complete Vertical Analysis Complete Horizontal Analysis Calculate Requested Ratios Answer Questions Using Additional Information Create Statement using template and information from the Operating Statement, Balance Sheet, the Additional Information and the responses to questions EXTRA CREDIT X X X I X X X X

Answer 1

1) Income statement:

The income statement is one of the three primary financial statements used to assess a company’s performance and financial position (the two others being the balance sheet and the cash flow statement). The income statement summarizes the revenues and expenses generated by the company over the entire reporting period.

The income statement is also known as a profit and loss (P&L) statement, statement of earnings, statement of operations or statement of income.

Income Statement Example

The basic formula on which an income statement is based is:

Revenues – Expenses = Net Income

All companies need to generate revenue to stay in business. Revenues are used to pay expenses, interest payments on debt and taxes owed to the government. After the costs of doing business are paid, the amount left over is called net income. Net income is theoretically available to shareholders, though instead of paying out dividends, the firm's management often chooses to retain earnings for future investment in the business.

Income statements are organized similarly no matter what company is being analyzed, but some line items may differ depending on the industry.

2) Balance Sheet:

A balance sheet (also called the statement of financial position), can be defined as a statement of a firm’s assets, liabilities and net worth. It provides a snapshot of a business at a point in time. These are prepared at the end of an accounting period like a month, quarter or year end. Comparison of balance sheets over years helps to gauge the financial health of a business. It got its name as assets minus liabilities (net assets) must equal the owner’s equity (they must balance). Every business will generally need a balance sheet while applying for loans or grants, submitting taxes or seeking potential investors.

3) Statement of Cash Flows:

The statement of cash flows, or the cash flow statement, is a financial statement that summarizes the amount of cash and cash equivalents entering and leaving a company.

The cash flow statement (CFS) measures how well a company manages its cash position, meaning how well the company generates cash to pay its debt obligations and fund its operating expenses. The cash flow statement complements the balance sheet and income statement and is a mandatory part of a company's financial reports

4) Ratio Analysis:

Ratio analysis compares line-item data from a company's financial statements to reveal insights regarding profitability, liquidity, operational efficiency, and solvency.Ratio analysis can be used to look at trends over time for one company or to compare companies within an industry or sector